Preparing For a Compliance Management System Review: A Practical Guide

While not mandated by regulation, regular Compliance Management System (CMS) reviews are critical for financial institutions to ensure compliance with consumer protection regulations. These reviews are guided by the CFPB Examination Manual and result in recommendations to help strengthen the overall program. This guide provides a practical framework for preparing for a CMS review.

Understanding the Review Process

An independent CMS review assesses the structure and effectiveness of a Company’s overall CMS program, covering policies, procedures, and operational implementations. Success requires thorough preparation, involving gathering key documents, such as policies, loan documentation, evidence of oversight, training records, complaint documentation, auditing/monitoring reports, etc. The initial review phase includes clarifying information requests ensuring the Compliance Officer has a solid understanding of the documents requested.

Essential Elements of an Effective CMS Program

1. Board and Management Oversight: The Board of Directors is ultimately responsible for developing and administering a CMS that ensures compliance with federal consumer protection laws and regulations. While another individual can be appointed to have day-to-day oversight of the program, the Board should be kept informed and have full visibility into consumer compliance matters. This can be evidenced in Board meeting minutes and supporting materials.

2. Policies and Procedures: A strong CMS will include policies and procedures to help the Company stay in compliance with consumer protection regulations. This will vary from company to company based on products and services. It is important to determine which regulations are applicable to your company and to create the proper policies and procedures.

3. Consumer Complaint Response: Policies and procedures for complaint handling are another element of a complete CMS. These should document the process of receiving, logging, escalating, and responding to consumer complaints. The individuals and departments responsible for any part of the complaint handling process should be identified within the policies and procedures.

4. Training and Employee Engagement: Training is critical to ensuring compliance culture across all organizational levels. Employees should be trained on applicable consumer protection regulations and consumer complaint handling as appropriate for their job functions. This training should be adequately documented and reviewed regularly to ensure it is up to date regarding laws and regulations.

5. Monitoring and Audit: Monitoring and Audit functions allow the Company to  continuously review and evaluate activities to ensure adherence to internal policies, regulatory requirements, and legal standards, identifying potential compliance risks, and taking corrective actions when necessary. Companies should create a monitoring and audit plan to include daily, weekly, monthly, and/or quarterly reviews for various areas of the CMS. The results of these would then be communicated to the Board.

Best Practices for Review Readiness

Companies should regularly assess their CMS programs' strengths and weaknesses in preparation for independent reviews. Implementing a U.S.-specific compliance program and maintaining current, accessible policies and procedures strengthens the program for regulatory and bank examinations. An independent review reinforces the company's compliance culture and operational effectiveness, ultimately building a robust consumer compliance framework.

CMS Review Checklist

1. Document Preparation
   • Prepare CMS policies and procedures including regulation specific policies such as Regulation E, ECOA, UDAAP, SCRA/MLA, etc. Policies related to consumer complaint handling and vendor management will also be reviewed.
   • Prepare training policies and procedures as well as training documentation including training logs evidencing employees completed training. Being able to provide training materials for review is also beneficial as this demonstrates the training content is sufficient.
   • If applicable, prepare loan lists for the reviewer(s) to make a selection from to review. Typical data points requested include but may not be limited to: Consumer name, application date, date loan was approved, loan term, APR, interest rate, loan amount, status of loan, debt to income, loan to value, and credit score. In a fair lending review, demographics like gender, race, city/state, marital status, and age may be requested as well.
   • Depending on the depth of the review, a reviewer will conduct testing on various types of loan files. This includes originated loans, denied applications, incomplete applications, SCRA eligible loans, and MLA eligible loans. They may also look at the servicing of loans particularly those that are delinquent.
2. Board and Management Oversight
   • Prepare to provide Board meeting and Committee meeting minutes covering the review period. These minutes should illustrate that the Board is made aware of the overall health of the CMS as well as any issues and concerns that have arisen. Appointments of compliance officers and approvals of policies and procedures should be documented as well.
   • Resumes and qualifications of the compliance officer and other senior management may be requested for review.
3. Policies and Procedures
   • An overall Compliance Management System Policy should be in place outlining the various elements of the program including who has ultimate responsibility for the day-to-day oversight of the program.
   • Policies and procedures for the applicable regulations should be readily available
4. Employee Training
   • Training materials or access to the training system/platform should be easily provided to reviewers
   • Training records demonstrating all applicable employees completed adequate training should be provided. These records should include the employee name, job title/position, name of the training, date training was assigned, date training was completed, test scores, and hire date at a minimum.
   • Training policies will also be reviewed for frequency of training, required passing score, consequences of not completing training on time, etc.
5. Consumer Complaint Handling
   • Policies and procedures related to processing consumer complaints will be reviewed.
   • A log of complaints received during the review period will be requested. This should include complaints received directly and indirectly. Indirect complaints are those that come from third-party agencies such as the CFPB, FDIC, OCC, or the Better Business Bureau.
   • The complaint log should include a brief description of the complaint, date the complaint was received, date it was resolved, and any other information that show it was handled in compliance with internal policies and procedures.
6. Monitoring and Audit
   • Prepare to provide the monitoring and audit policies and procedures, plans/schedules, and any monitoring/audit reports from the review period.
7. Personnel Preparation
   • The Company should be prepared to have personnel available for walkthrough/demonstrations during the review if further explanation is necessary in a specific area.
   • These demos may include complaint handling, a general overview of products and services, the application/underwriting process, fair lending etc.
8. U.S.-Specific Requirements
   • For non-U.S. companies, confirm the presence of a U.S.-specific CMS program and adequate knowledge of U.S. laws and regulations that apply to the company.

Following this checklist helps ensure a thorough and smooth independent review process, providing a solid foundation for ongoing compliance and risk management improvements.

Keys to Long-Term Success

CMS success extends beyond the review. Organizations that excel in compliance management start preparation well in advance, maintain meticulously organized records, and ensure key personnel availability throughout the review process. Most importantly, they view compliance not as a periodic exercise but as an ongoing commitment. A robust CMS requires constant attention to documentation, regular staff training, and proactive monitoring. By maintaining this disciplined approach year-round, companies not only prepare for successful reviews but build a resilient compliance framework that protects consumers, satisfies regulators, and strengthens the organization's overall risk management posture.